Increase In Board Size Research Articles

Corporate governance structures and bank risk taking behaviour: evidence from Africa using income bracket approach

The study sought to determine the effect bank level corporate governance have on risk taking behaviour of banks in Africa and its income bracket groupings using a two-step GMM panel dataset of 215 banks from 29 African countries. The results show that while board size and CEO duality significantly reduce risk taking behaviour of banks in Africa, extreme increase in board size increased risk taking behaviour of banks in Africa. Furthermore, the results reveal that the effect of bank level corporate governance structures on bank risk taking behaviour varies greatly across banks in different income brackets in Africa. This implies that the effects of corporate governance structures are shaped by contextual settings and effects. The policy implication from these findings are that bank regulators must institute corporate governance frameworks that help shape risk taking behaviour of banks which will enhance financial institution and sector soundness and stability. Also, bank ownership and management must be careful in the selection and implementation of bank corporate governance structures since not all the corporate governance structures induce the stability of banks given the income bracket a bank finds itself.

Performance implications of board size, composition and activity: empirical evidence from the Indian banking sector

PurposeThe purpose of this paper is to examine the performance implications of board size, composition and frequency of board meetings on the performance of banks.Design/methodology/approachThe performance of banks is assessed on various parameters such as return on assets (ROA), Tobin’s Q, non-performing asset ratio (NPA ratio) and the net write-off ratio (NWO ratio). The effects of changes in board size and composition and frequency of meetings on the performance of banks are investigated using feasible generalized least square (FGLS) estimation of panel data covering a time span of five years concerning 40 banks incorporated in India. Frequency of board meetings is taken as a proxy for board activity and involvement. The authors have also tested for endogeneity issues in the model.FindingsA curvilinear relationship was found between the board size and performance of banks. The authors have modelled a cubic form of the relationship for Indian banks. The authors’ findings indicate that an increase in board size is associated with better bank performance within both low and high board size ranges. Alternatively, increased board size is negatively associated with bank performance in the intermediate board size range. The study did not find any significant relationship between performance and frequency of board meetings and board composition.Research limitations/implicationsThe behavioural variables reflecting the involvement of the board have not been incorporated in the model to determine the impact of board involvement on the performance of banks owing to the availability of data. It is hoped that this paper will be useful for major regulatory bodies such as the Ministry of Corporate Affairs (MCA), Securities and Exchange Board of India (SEBI), Company Law Board (CLB) and stock exchanges in India and other emerging economies in devising listing norms and other governance-related aspects.Originality/valueNon-linear relationships between the board size and performance are not normally prevalent in emerging economies, especially in the banking sector. However, such a relationship exists among the Indian banks. This paper is the first of its kind to identify and address the same.

Hospital ownership, decisions on supervisory board characteristics, and financial performance.

Dynamic and complex transformations in the hospital market increase the relevance of good corporate governance. However, hospital performance and the characteristics of supervisory boards differ depending on ownership. The question therefore arises whether hospital owners can influence performance by addressing supervisory board characteristics. The objective of this study is to explain differences in the financial performance of hospitals with regard to ownership by studying the size and composition of supervisory boards. The AMADEUS database was used to collect information on hospital financial performance in 2009 and 2010. Business and quality reports, hospital websites, and data from health insurer were used to obtain information on hospital and board characteristics. The resulting sample consisted of 175 German hospital corporations. We utilized ANOVA and regression analysis to test a mediation hypothesis that investigated whether decisions regarding board size and composition were associated with financial performance and could explain performance differences. Financial performance and board size and composition depend on ownership. An increase in board size and greater politician participation were negatively associated with all five tested measures of financial performance. Furthermore, an increase in physician participation was positively associated with one dimension of financial performance, whereas one negative relationship was identified for nurse and economist participation. For clerics, no associations were found. Decisions concerning board size and composition are important as they relate to hospital financial performance. We contribute to existing research by showing that, in addition to board size and physician participation, the participation of other professionals can also influence financial performance.

English

This paper analyzed the effects of board size and board composition on the performance of Nigerian banks. The financial statements of five banks were used as a sample for the period of nine years and the data collected were analysed using the multivariate regression analysis. The paper found that board size has significant negative impact on the performance of banks in Nigeria. This signifies that an increase in Board size would lead to a decrease in ROE and ROA. On the other hand, board composition has a significant positive effect on the performance of banks in Nigeria. This signifies that an increase in Board composition would lead to a decrease in ROE and ROA. It is recommended that banks should have adequate board size to the scale and complexity of the organisation’s operations and be composed in such a way as to ensure diversity of experience without compromising independence, compatibility, integrity and availability of members to attend meetings. The board size should not be too large and must be made up of qualified professionals who are conversant with oversight function. The Board should comprise of a mix of executive and non-executive directors, headed by a Chairman. Key words: Board size, board composition, Nigerian banks and financial performance.

Internal Corporate Governance and the Performance of Commercial Banks in Nigeria

The objective of this study is to investigate the effect of internal corporate governance on the performance of companies in Nigeria. The study employed multiple regression analysis. The result of this study revealed that board size is significant but negatively related to the performance of commercial banks. It was discovered that a negative relationship exists between bank performance board size as well as negative relationship exists between shareholders and ROA. That is a reasonable strong correlation exists between poor performance and subsequent increase in board size and independence. Furthermore, the relationship between shareholders and ROA shows a negative effect but it affects the ROA significantly. Based on this, the study recommended that steps should also be taken for mandatory compliance with the code of corporate governance and also there is the need to set up unified corporate governance.

Impact of Corporate Governance Practices on Working Capital Management Efficiency: A Structural Equation Modelling Approach

Working capital management and corporate governance are two important issues of overall firm management. The purpose of this study was to explore the impact of corporate governance practices on working capital management (WCM) efficiency of firms in a growing economy like India. We used data from 127 large Indian manufacturing sector firms and employed structural equation modelling to study this relationship. The period of the study is from 2004-2013 (10 years). We found that corporate governance indicators like board size, number of independent directors in a board, and percentage of independent members in an audit committee do significantly affect the efficiency of working capital management. We also found that an increase in independence of the board and audit committee compels the management to be conservative in managing short term capital, which in turn negatively affects WCM efficiency. It was observed that an increase in board size weakens control and allows the management to follow aggressive WCM strategies. The results also revealed that the size and independence of a board has more effect on WCM efficiency than the independence of the audit committee. The results of the study will help the practitioners, investors, and analysts to better understand the relation between effective corporate governance and short term funds management and enable them to take better and informed decisions.

Give a Hard Problem to a Diverse Team: Exploring Large Action Spaces

Recent work has shown that diverse teams can outperform a uniform team made of copies of the best agent. However, there are fundamental questions that were not asked before. When should we use diverse or uniform teams? How does the performance change as the action space or the teams get larger? Hence, we present a new model of diversity for teams, that is more general than previous models. We prove that the performance of a diverse team improves as the size of the action space gets larger. Concerning the size of the diverse team, we show that the performance converges exponentially fast to the optimal one as we increase the number of agents. We present synthetic experiments that allow us to gain further insights: even though a diverse team outperforms a uniform team when the size of the action space increases, the uniform team will eventually again play better than the diverse team for a large enough action space. We verify our predictions in a system of Go playing agents, where we show a diverse team that improves in performance as the board size increases, and eventually overcomes a uniform team.

Corporate Governance and Firm Financial Performance: Do Ownership and Board Size Matter?

Using a sample of 10 selected banks annual reports covering 2005-2010, this study examines the relationship between corporate governance and performance in Nigeria banking sector. Based on the econometric model, the result indicates that improved performance of the banking sector is not dependent on increasing the number of executive directors and board composition. It shows further that when there are more external board members, performance of banks tends to be worse. The study concludes a need for increase in board size and decrease in board composition as measured by the ratio of outside directors to the total number of directors in order to increase the bank performance. DOI: 10.5901/ajis.2013.v2n3p251

Voting Efficiency and the Even-Odd Effects of Corporate Board: Theory and Evidence

We analyze a simple model of board voting and find that in comparison to boards with an even number of directors (even boards), those with an odd number of directors (odd boards) improve voting efficiency by better aggregating directors’ information. Consistent with the model’s implications, our empirical analysis reveals that firms with an odd board derive higher Tobin’s Q, deliver better operating performance, exhibit stronger Chief Executive Officer (CEO) turnover-performance sensitivity, and have lower CEO compensation but higher CEO pay-performance sensitivity, than do firms with an even board. Furthermore, these even-odd effects diminish as board size increases. Overall, our findings are consistent with the even-odd characteristic of board playing an important role in influencing board voting efficiency and thus the quality of board decisions.

Fund Governance, Fees and Performance in Australian Corporate Superannuation Funds: A Non-Parametric Analysis

We investigate the governance structure and practices of Australian corporate superannuation funds and explore the link between a fund’s governance, fees and performance. Overall, it appears that the funds have governance structures that are prone to agency conflicts, lack of transparency and that trail behind overall corporate governance standards. We find that a fund’s governance practices do not affect performance, but they do affect fees. In addition, the international subsidiary and listing status of the sponsoring firms are found to affect fund fees. As a fund’s board size increases, so do the number of asset consultants being hired, and fund fees grow. The relationships between fund governance, management and fees are significantly influenced by fund size and are non-linear. We also found a potential link in the governance practices between the sponsoring firms and their funds. Our study provides important insight into how, although trustee structure does not have a direct impact, their strategic decisions affect how funds operate and agency problems could be controlled. Furthermore, adequate trustee competency that addresses the specific needs and nature of each fund must accompany fund governance structures; a prescriptive governance framework does not fit all.

Supporting innovation in government-sponsored networks: The role of network board composition

With growing public and private support of networks of small and medium-sized firms, many networks rely on network boards to ensure effective governance. By integrating agency and embeddedness reasoning, this article argues that network board composition aimed at effective monitoring may be at the cost of lost ability to strategize. In this study, longitudinal data of Swedish government-supported innovation networks demonstrate that network innovation improves as network board size increases, but that returns to such increases diminish when boards become overly large. Similarly, network board independence is beneficial up to a certain threshold, after which further increases in independence become detrimental. The study clarifies how agency and embeddedness theory can be combined to explain boards’ abilities to combine monitoring and strategizing at the network level in increasing the levels of network innovation.

Does the Team Leverage the Board's Decisions?

ABSTRACTManuscript Type:EmpiricalResearch Question/Issue:This study analyses the form of the board‐TMT interaction and the firm's level of strategic change. Relatedly, we explore the premise that there needs to be a good fit between the board of directors and the top management team to effectively bring about strategic change.Research Findings/Insights: Using archival data from a sample of 119 firms in the period 1993–2000, we found that when a synergy exists between the board and the TMT, there will be a greater inclination for strategic change. The results indicate that a board's inclination to contribute to strategic change increases as the board size increases. Equally, it is possible to accept that the relationship between board tenure and their inclination towards strategic change is not linear. Finally, the simultaneous analysis of board composition and the ratio of directors on the TMT, demonstrates that the interaction of both variables has effects on the firm's strategic change.Theoretical/Academic Implications: This study provides empirical support in favor of an active role of the board shaping the firm's strategic decisions. We have developed and tested a set of arguments regarding with the role of the board on the firm's change in strategy. We have investigated as well, the leveraging effect of one of the variables that define the composition of the management team on the relationship board‐change in strategy.Practitioner/Policy Implications: In order to create an effective board, a broader governance structure must be examined with a detailed study of aspects of the composition of the board and the TMT (previous research has only considered characteristics linked to the CEO). The dynamics of the relationships between both governance mechanisms are essential and leverage the board capability.

The relation between board size and firm performance in firms with a history of poor operating performance

Focusing on a sample of smaller firms with a history of poor operating performance, this paper posits that increases in board size will be associated with better share price performance. Notably, board sizes studied here are, on average, much smaller than those typically studied by prior research. Mostly consistent with predictions, board size is found to be positively correlated with firm value in between-firms tests, and changes in board size are found to be positively associated with annual stock returns. Last, event study results suggest that the market responds favorably to board size increases and unfavorably to large board size decreases. Together, these results identify a setting in which larger board sizes appear to be positively related to shareholder value.

Board changes following mergers

This study documents an overall increase in board independence and size following completed mergers. The increase in board size is positively related to the size of the target firm, suggesting either that large targets have bargaining power to negotiate inclusion of their directors on the board of the merged firm, or that high target director representation is perceived to be vital in mergers of equals. The change in board independence is positively related to post-merger cash flow difficulty, suggesting that independent directors are more likely to be added if the firm faces financial constraints.

Influence of Board Size and Independence on Firm Performance: A Study of Indian Companies

Corporate governance issues have attracted a good deal of public interest because of their apparent importance for the economic health of corporations and society in general, especially after the plethora of corporate scams and debacles in recent times. Corporate governance issues flow from the concept of accountability and governance and assume greater significance and magnitude in the case of corporate form of organization where the ownership and management of organizations are distanced. And, it is in this context that the pivotal role played by the board of directors in maintaining an effective organization assumes much importance. A major part of the debate on corporate governance centres around board composition especially board size and independence. Various committees have mandated a minimum number of independent directors and have given guidelines on board composition. However, the relationship of board characteristics such as composition, size, and independence with performance has not yet been established. This paper addresses this question: Does the board size and independence really matter in terms of influencing firm's performance? The findings suggest that: There is an inverse association between board size and firm performance. Different proportions of board independence have dissimilar impact on firm performance. The impact of board independence on firm performance is more when the board independence is between 50 and 60 per cent. Smaller boards are more efficient than the larger ones, the board size limit of six suggested as the ideal. Independent directors have so far failed to perform their monitoring role effectively and improve the performance of the firm. The guidelines on corporate governance should take into account the ‘cross-board’ phenomenon while defining the criteria for eligibility for appointment as an independent director. Lack of training to function as independent directors and ignorance of the procedures, tasks, and responsibilities expected of them could be reasons for the independent directors' non-performance. A bad performance leads to an increase in board size, which in turn, hampers performance. Guidelines are provided for future studies to include different variables to see which board composition is suitable for different companies at different stages of life cycle.

Board Size and Corporate Financial Performance: An Investigation

This paper examines the association between board size and corporate financial performance using data on 504 corporations belonging to 18 industries. The results suggest that the size of the board plays an important role in influencing the financial performance of corporations. The analysis shows that the performance improves if the board size increases, but the contribution of an additional board member decreases as the size of the corporation increases. The results, however, fail to indicate any significant role of directors' equity ownership in influencing the performance.